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Improved productivity a must as commodities fall

The pressure to improve productivity and adaptability is increasing substantially in the mining industry, where downwards pressure on commodity prices is expected to continue in the short-term.

The price of iron ore fell by US$1.90 per tonne overnight to US$131.90. Commodity prices have been under significant pressure recently due to a heavy increase in supply and volatile demand.

The fall overnight has led to shares in iron ore miners falling on Monday. BHP Billiton (ASX: BHP) has fallen 1.3% and Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have dropped 2.1% and 3.5% respectively. Meanwhile, diversified mining services company Ausdrill (ASX: ASL) has plummeted 5.8% to trade at $1.56 per share.

The need to improve productivity and adaptability as well as to reduce unnecessary capital spending were each highlighted in BHP’s annual report, which was released last week. The report stated that, “increased supply has, however, exerted downward pressure on many commodity markets more recently and we expect this trend to continue over the short term. While lower rates of investment across the industry will ultimately lead to more balanced markets, all resources companies will need to improve productivity and be flexible enough to adapt to change in this more challenging environment.”

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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